On June 16, 2016, the United States Supreme Court, in an opinion delivered by Justice Kagan for a unanimous Court, clarified the standard for awarding attorneys’ fees to prevailing parties in copyright cases in Kirtsaeng v. John Wiley & Sons, Inc., No. 15-375 (June 16, 2016). In the wake of its recent ruling in Halo Electronics, Inc. v. Pulse Electronics, Inc., which dealt with a district court’s discretion to award enhanced damages in patent cases, the Court held that “[w]hen deciding whether to award attorney’s fees under § 505 [of the Copyright Act], a district court should give substantial weight to the objective reasonableness of the losing party’s position…” The Court confirmed, however, that objective reasonableness “can be only a substantial factor” in assessing whether fees are appropriate, not the controlling factor.
The decision came in a case brought to the Court by defendant Supap Kirtsaeng, who prevailed against claims of copyright infringement brought by publishing company John Wiley & Sons Inc. The merits of the case were decided in favor of Kirtsaeng after the Supreme Court decided that defendant could invoke the Copyright Act’s “first-sale doctrine.” Having prevailed, Kirtsaeng returned to the District Court seeking over $2 million in attorneys’ fees from Wiley under the Copyright Act’s fee-shifting provision, § 505. The District Court denied Kirtsaeng’s request because it believed that Wiley had taken reasonable positions during litigation. The Second Circuit affirmed, finding that the District Court was correct to place “substantial weight” on the reasonableness of Wiley’s position. The Supreme Court granted certiorari to resolve disagreement in the lower courts about how to address an application for attorneys’ fees in a copyright case.
Under § 505, a district court “may … award a reasonable attorney’s fee to the prevailing party.” The Supreme Court recognized that the text “clearly connotes discretion” and eschews any “precise rule or formula.”
In analyzing § 505, the Court addressed other open-ended, fee-shifting statues, emphasizing that a district court’s discretion to award fees has limits determined relative to the objectives of the relevant Act. In terms of the Copyright Act, the Court determined that the relevant objectives were to enrich the general public through access to creative works by striking a balance between encouraging and rewarding authors’ creations and enabling others to build on that work.
Using that test, the Court concluded that putting substantial weight on the reasonableness of a losing party’s position enhanced the probability that creators and users will enjoy the substantive rights the Act provides. Specifically, the Court determined that parties with strong positions are encouraged to stand on their rights, given the likelihood that they will recover fees from the losing party, and those with weak positions are deterred by the likelihood of having to pay two sets of fees. Relying heavily on the objective reasonableness of a case is also more administrable, found the Court, given that a district court that has ruled on the merits of a copyright case can easily assess whether a losing party advanced an unreasonable position.
The Court cautioned, however, that objective reasonableness can be only a substantial factor in assessing fee applications and not the controlling factor. When determining whether to award fees, the Court instructed district courts to take into account a range of considerations beyond the reasonableness of litigating positions, including the existence of litigation misconduct and the potential to deter repeated infringements.
Ultimately, the Supreme Court found that while objective reasonableness should be given substantial weight, the Second Circuit’s language went too far in suggesting that a finding of reasonableness raises a presumption against granting fees. The Court vacated the ruling and remanded to the District Court for the opportunity to reconsider Kirtsaeng’s fee application in view of the Court’s guidance.
The Court’s ruling comes on the heels of the ruling in Halo Electronics, Inc. v. Pulse Electronics, Inc. and over two years after the Court’s ruling in Octane Fitness, LLC v. Icon Health & Fitness, Inc., two cases dealing with similar discretionary provisions of the Patent Act. Halo related to enhanced damages under § 284 and Octane Fitness related to attorneys’ fees under § 285. In both Halo and Octane Fitness, the Supreme Court rejected Federal Circuit frameworks as unduly rigid and for impermissibly encumbering the statutory grant of discretion to district courts.
In Octane Fitness, the Supreme Court addressed the open-ended fee shifting provision of the Patent Act, § 285. In that case, the Court rejected the Federal Circuit’s standard for determining when to award fees as set forth in Brooks Furniture, finding that the framework superimposed an inflexible framework onto statutory text that was intended to be inherently flexible. The test from Brooks Furniture included a determination of whether the litigation is both objectively baseless and brought in subjective bad faith. The Court in Octane Fitness concluded that a case is “exceptional” and merits fees under the statute when it stands out from others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.